ASSIGNMENT

FINANCIAL ACCOUNTING

CLASS:

BBA II

SUBMITTED TO:

SIR GHULAM MUSTAFA SHAIKH

SUBMITTED BY:

SARAH KHAN CHANDIO

REGISTRATION NO:

0911120
 Corporation
A corporation is a legal entity having an existence separate and distinct from that of its owners. In the eyes
of law a corporation is an artificial person having many of rights and responsibilities of real person.

A corporation as a separate legal entity, may own property in its own name. Thus the assets of a corporation
belong to the corporation itself not to the stake holders. A corporation has a legal status in court, that is, it
may sue and be sued as if it were a person. As a legal entity, a corporation may enter in to contracts, is
responsible for its own debts, and pays income taxes on its earning.

Formation of a corporation

A corporation is created by obtaining a corporate charter from the state in which the company is to be
incorporated. To obtain a corporate charter, an application called the articles of incorporation is submitted to
the state corporation’s officers. Once the charter is obtained, the stockholders in the new corporation hold a
meeting to elect directors and to pass bylaws as a guide to the company’s affairs.

Organization costs

The formation of a corporation is a much more costly step than the organization of a partnership. The
necessary costs include the payment of an incorporation fee to the state, the payment of the fees to the
attorneys for their services in drawing up the articles of incorporation, payments to promoters, and a variety
of other outlays necessary to bring the corporation in to the existence. These costs are charged to an account
called organization costs.

Rights of the stockholders

2. To share in profit by receiving the dividends declared by the board of directors. Stockholders in a

corporation may not make withdrawals of company’s assets.

Functions of the board of directors

The primary functions of the board of directors are to mange the corporation and to protect the interest of the
stockholders. At this level, management may consist principally of formulating policies and reviewing acts
of the officers. Specific duties of directors include declaring of dividends, setting salaries of the officers,
reviewing the system of internal control.
 Function of the corporate officers

Corporate officers are the top level of the professional managers appointed by the board of directors to run
the business. These officers usually include the president or chief executive officer, one or more vice
presidents, a controller, a treasure, and a secretary. A vice president may be given the responsibility for such
important functions personnel, finance and production. The responsibilities of the treasure and secretary are
most directly related to the accounting phase of business operations.

Paid in Capital

Paid in capital, also called contributed capital or capital surplus, refers to the capital contributed to a
corporation by investors on top of the par value of capital stock. In other words, the money that a company
gets from potential investors in addition to the stated value of the stock.

The definition above is the definition of Additional paid in capital (Paid in capital in excess of par.) Paid in
Capital, as a whole, must include Capital stock as well as Additional paid in capital. Use of the abbreviation
may be misleading, if the user is not aware of the use of the abbreviation.

Paid in Capital = A + B ; this is all your contributed capital: A = Capital Stock (common plus preferred) & B
= Additional paid in capital (Paid in capital in excess of par.)

Additional Paid-in Capital Excess received from stockholders over Par Value or Stated Value of the stock
issued; also called contributed capital in excess of par. For example, if 1000 shares of $10 par value common
stock is issued at a price of $12 per share, the additional paid-in capital is $2000 (1000 shares x $2).
Additional paid-in capital is shown in the Stockholders' Equity section of the balance sheet.

Contributed capital shows what has been invested by stockholders through purchase of stock from the
corporation (not through purchase of stock on the open market from other stockholders). Contributed capital,
in turn, has two main components: Stated capital, which represents the stated, or par value of the shares, and
additional paid-in capital, which represents money paid to the company above the par value.

Stock Split

A stock split or stock divide increases the number of equity shares in a public company. The price of shares
is adjusted such that the market capitalization of the company will remain the same after the split, so that
dilution does not occur. Options and warrants are included. A stock split is a decision by the company's
board of directors to increase the number of shares that are outstanding by issuing more shares to current
shareholders.
 Common Stock

A security that represents ownership in a corporation. Holders of common stock exercise control by electing
a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority
ladder for ownership structure. In the event of liquidation, common shareholders have rights to a company's
assets only after bondholders, preferred shareholders and other debtholders have been paid in full.

Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to
a share of the company's success through dividends and/or capital appreciation. In the event of liquidation,
common stockholders have rights to a company's assets only after bondholders, other debt holders, and
preferred stockholders have been satisfied. Typically, common stockholders receive one vote per share to
elect the company's board of directors (although the number of votes is not always directly proportional to
the number of shares owned). The board of directors is the group of individuals that represents the owners of
the corporation and oversees major decisions for the company. Common shareholders also receive voting
rights regarding other company matters such as stock splits and company objectives. In addition to voting
rights, common shareholders sometimes enjoy what are called "preemptive rights". Preemptive rights allow
common shareholders to maintain their proportional ownership in the company in the event that the
company issues another offering of stock. This means that common shareholders with preemptive rights
have the right but not the obligation to purchase as many new shares of the stock as it would take to maintain
their proportional ownership in the company. also called junior equity.

Preferred Stock

A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock.
Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and
the shares usually do not have voting rights.

The precise details as to the structure of preferred stock is specific to each corporation. However, the best
way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed
dividends) and equity (potential appreciation). Also known as "preferred shares".

Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock
holders, and which takes precedence over common stock in the event of a liquidation. Like common stock,
preferred stocks represent partial ownership in a company, although preferred stock shareholders do not
enjoy any of the voting rights of common stockholders. Also unlike common stock, a preferred stock pays a
fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the
financial ability to do so. The main benefit to owning preferred stock is that the investor has a greater claim
on the company's assets than common stockholders. Preferred shareholders always receive their dividends
first and, in the event the company goes bankrupt, preferred shareholders are paid off before common
stockholders. In general, there are four different types of preferred stock: cumulative preferred, non-
cumulative, participating, and convertible. also called preference shares.
 Preferred as to Dividend

A dividend that is accrued and paid on a company's preferred shares. In the event that a company is unable to
pay all dividends, claims to preferred dividends take precedence over claims to dividends that are paid on
common shares.

Cumulative Preferred Stock

Callable preferred stock

An issue of preferred stock that may be repurchased by the issuer at a specific price, usually par value or
slightly above. The option to repurchase such stock is held by the issuer, not the investor. Calls can be
expected when market rates of interest have fallen significantly below the yield on the preferred stock at the
time the stock was issued.

Convertible Preferred Stock

These are preferred issues that the holders can exchange for a predetermined number of the company's
common stock. This exchange can occur at any time the investor chooses regardless of the current market
price of the common stock. It is a one way deal so one cannot convert the common stock back to preferred
stock.

Market value

Market value is the price at which an asset would trade . Market value is often used interchangeably with
open market value, fair value or fair market value, although these terms have distinct definitions in different
standards, and may differ in some circumstances.

Treasury stock
US term for corporate stock reacquired by the issuing firm to (1) hold in its control to frustrate a takeover
attempt, (2) reissue it to the public at a later date for a better price, (3) cancel (retire) it to reduce number of
outstanding shares and thus increase earnings per share. When held by the issuing firm, treasury stock
accrues no dividend and has no voting power. It is recorded in the issuer's books at its acquisition cost
(called cost method) or at its par value (called par value method). In either case, retained earnings equal to its
acquisition cost are appropriated. In the issuer's balance sheet, it is show as a deduction in arriving at
stockholders' equity, and is ignored when computing the ratios that measure value per common stock. Also
called reacquired stock or (in the UK) treasury shares.